New stars in the sky

The remarkable boom enjoyed by the nation’s young airlines shows no signs of slowing down

Air traffic: India has 48 cities with a population of a million or more and 128 civil airports

The staggering expansion of the domestic airline industry is yet another of
India’s impressive business success stories.The number of domestic
passengers is expected to grow by 9-10% annually, from the current 50m to
150m by 2020, rendering India one of the three largest markets in the world.

The unbridled growth of air routes, connecting the 126 domestic airports
controlled by the Airports Authority of India, will not only make doing
business in India easier, but will throw up new opportunities for both
domestic and international investors.

“The infrastructure investment is going to be huge in the next 15 to 20
years,” says Anil Shrikhande, president of Rolls-Royce India. “India is
going to add a lot of airplanes. On the commercial side, both the Boeing and
Airbus forecasts call for some 1,300 planes, worth some $150 billion over
the next 20 years. We’re talking big numbers here.”

The growth is accelerating. In July this year, India’s airlines carried 5m
passengers — a rise of 22.3% on the previous July. This followed an 18%
expansion in the first half of 2011.

Many of the domestic routes service “tier-two” cities, emerging centres that
have not yet reached the development standards of the sprawling metropolises
of Delhi and Mumbai, but which still offer a gateway to lucrative business
opportunities for overseas clients.

India is projected to have 68 cities with a population of more than 1m by
2030, as against 42 today. It is expected that the number of tier-two
cities, with a population of between 1m and 4m, will grow from the current
33 to 55.

Since 2009, trade officials at the British High Commission have been scouring
over 20 of these cities, including Chandigarh, Jaipur, Cochin and
Coimbatore, engaging with about 2,000 businesses to look for potential
link-ups between Britain and India.

Meanwhile, airlines are also looking for new opportunities. Although
state-owned Air India is losing business and is on the brink of financial
collapse, private carriers have boomed. Several, including Jet Airways,
Kingfisher, IndiGo and SpiceJet, have grown far beyond the domestic market
and now operate popular international routes.

But the paradox of Indian carriers is that, despite the headline-grabbing
passenger figures, underlying market demand and a strong economic
environment, there are still serious financial woes in the industry.

High fuel prices and fare discounting in the domestic market by the struggling
Air India have combined to weaken financial performance.According to the
Centre for Asia Pacific Aviation (Capa), which provides independent
intelligence on the sector, Jet, Kingfisher and SpiceJet all reported losses
during the traditionally strong first quarter.

If these trends continue, the private airlines could lose $450m to $550m in
the 12 months to March 2012, while Air India’s losses could reach $1.75
billion.

Vijay Mallya, the flamboyant billionaire chairman of Kingfisher, India’s
largest private airline, was dealt a blow in September by the company’s own
auditor, BK Ramadhyani, which raised doubts over its viability as a business.

Mallya — chairman of UB Group and co-owner of Formula One team Force India and
the Indian Premier League cricket team Bangalore Royal Challengers —
established his airline in 2006. It now connects 32 cities.

Nikos Kardassis, chief executive of Jet, sees rapid growth in the sector as
inevitable. “Look at the dynamics: 70% of the population are 35 or younger,
50% are 25 or younger, universities and colleges are graduating four to five
million a year — all potential customers.”

Jet currently serves 52 cities in India, and Kardassis wants to add 22 more in
the next three years. He is reliant on central and state government
collaboration to get the airports built or upgraded. “It is good for our
business, but it’s necessary — they need aviation, it’s critical to the
growth of India,” he says. Notwithstanding this rapid boom in domestic
routes, Jet is also positioning itself as a key global player, with 50% of
its revenue from international business. Kardassis is looking for more
routes westward into Europe — currently Jet flies only to Milan, Brussels
and London — and east to Vietnam, Shanghai, Jakarta, Melbourne and Sydney.

Jet, he admits, came late to online booking and check-in, but it is constantly
“forced to find solutions”

to keeping costs competitive. The Jet board is also evaluating the low-cost
model of airlines such as Air Asia, but asking “how does that fit into an
airline known for service?”

In addition to the airlines’ financial losses, the rate of growth in the
aviation sector has brought challenges as both infrastructure and manpower
struggle to keep pace.

The number of pilots employed by India’s airlines has more than doubled in the
past five years, from 2,000 to 4,500, leading to concerns that, in the rush
to recruit, lax scrutiny has let through pilots who are neither qualified
nor suitable for the job.

A scandal earlier this year saw several pilots from a number of airlines fired
after it was discovered that they had faked their qualifications. In one of
the most terrifying cases, IndiGo pilot Parminder Kaur Gulati endangered
passengers by touching down at Goa airport on the plane’s nose wheel rather
than using the rear landing gear. An inquiry revealed that she had
previously landed aircraft incorrectly on between 10 and 15 occasions.

Kapil Kaul, chief executive of Capa South Asia, attributed the problem to
“mistakes that airlines are making in the growth phase due to a shortage of
manpower, where just about anyone is being picked up”.

India’s flight regulatory body, the Directorate General of Civil Aviation, has
assured passengers that it is taking all necessary steps to ensure their
safety.

Jet Airways - international and domestic flights

Profile: Founded in 1993 in Mumbai; now serves 75 destinations
including Abu Dhabi, Bangkok, Brussels, Hong Kong, Johannesburg, London and
New York. More than 170 internal flights per day including no-frills carrier
Jet Lite. Carried 14.7m passengers in year to March 2011. Showpieces: Only Indian airline to fly to India with private suites in
first class. Voted world’s second-best airline by readers of Condé Nast
Traveler magazine in US. Flagships, 10 Boeing 777-300 ER and 12 Airbus
A330-200 aircraft. Key personnel: Nikos Kardassis, chief executive since 2009, formerly of
Merrill Lynch. Results: Pre-tax profit in year to March 2011 of £6.2m on gross sales
of £330m (up 19% on 2010).

Kingfisher Airlines - international and domestic flights

Profile: India’s largest private airline by capacity and market share,
offers more than 350 flights per day and carried 12m passengers last year.
Recently merged with Air Deccan. Part of UB Group, which also includes
brewing, engineering, property and chemicals interests. Showpieces: Flagship aircraft are five Airbus A330 and eight A321.
Routes to London, Hong Kong, Bangkok, Dubai, Kathmandu, Colombo, Dhaka and
Singapore. Key personnel: Dr Vijay Mallya, group chairman, took over in 1983 after
the death of father Vittal. Rationalised the business and launched
Kingfisher Airlines in 2005. Results: Year ending March 2011, Kingfisher Airlines recorded a net
loss of £137m on sales of £849m.